Porting a Mortgage in Ontario: How It Works and When It Fails

You have a good interest rate and you are about to sell and buy. Porting your mortgage may let you keep that rate, but it is not an automatic right and it does not always work out the way people expect.

This article explains what porting is, what decides whether it succeeds, and what to check before you sign a purchase agreement.

What porting means

A portable mortgage lets you transfer your existing balance, interest rate and terms to a new home when you sell and buy, which avoids breaking the contract. Whether the mortgage can be ported, and on what conditions, depends on the lender.

In other words, porting is a feature of your mortgage contract, not a rule of law. Check your mortgage documents for a portability clause before you assume it is available.

Porting matters most when your current rate is better than the rates on offer, or when ending the mortgage early would be costly. Because the contract carries over to the new home, you avoid breaking it. Even so, porting is only one option, and it helps to compare it with the cost of breaking the mortgage.

Why the lender's contract controls the details

No statute sets the conditions for porting. Time limits between selling and buying, requalification requirements, and how any extra borrowing is handled all depend on each lender's contract. Many people are surprised to learn that the lender may assess the new property and your finances again, much as it would for a new application.

• How long you have between the sale of the old home and the purchase of the new one.
• Whether you must qualify again on income and credit.
• Whether the new property must meet the lender's standards.
• How any additional amount you need to borrow is priced and blended with your existing rate.

The answers are in your agreement or your lender's policies, so ask for them in writing before you firm up your purchase.

Different lenders handle these points differently, so a friend's experience with another lender may not match yours. Ask what happens if your sale and purchase dates do not line up, and whether the lender can refuse the new property.

When the new home costs less or more

If the new home costs less than the amount of the mortgage, you may still pay a prepayment penalty. How the lender works that out in your case depends on your contract, so ask the lender to explain it in writing before you commit to the purchase.

If the new home costs more, you will usually need more money than your existing mortgage provides. How the extra amount is borrowed, and at what rate, depends on the lender and your contract. Ask the lender exactly what the combined rate would be before you commit to the purchase.

What it costs if you cannot port

If you break a mortgage contract, the prepayment penalty is usually the higher of three months' interest on what you still owe or the interest rate differential (IRD). Federally regulated lenders must set out prepayment privileges and penalties in an information box at the start of the mortgage agreement.

If your mortgage term is longer than five years, the Interest Act gives a borrower a right after five years from the mortgage date to pay off the principal and interest plus three months' further interest in lieu of notice. That right does not apply to a mortgage given by a corporation. A lawyer can confirm whether it fits your mortgage.

How the IRD is worked out depends on your lender and your contract, so it is worth confirming with a lawyer. Ask for a written penalty estimate before you decide between porting and breaking the mortgage.

If money is tight around the move, other relief options a lender may offer include blend-and-extend, capitalizing missed payments, interest-only payments for a limited time, and a sale-by-borrower plan in which the owner sells at fair market value and can usually stay up to 90 days. Whether any of these is available to you depends on your lender.

What to do next

• Read your mortgage for a portability clause and any time limits.
• Ask your lender in writing whether porting is available for your planned purchase.
• Ask how a higher or lower purchase price would change your rate and penalty.
• Find the prepayment penalty terms in your agreement.
• Line up your closing dates so the sale and purchase fit the lender's window.
• Have a lawyer review the mortgage terms before you make an unconditional offer.

Because the rules sit in your contract, small wording differences can change the result. Getting the answers before you buy is far easier than fixing a problem near closing.

Keep your mortgage agreement, renewal letters and any lender emails together in one place, so you can show what was said about porting if a question comes up later.

Frequently asked questions